Embedded finance: why banks embrace fintech partnerships

Today’s consumers are tech-savvy and expect every digital platform to be as quick and easy to use as Amazon or Apple. 

The same is occurring in the banking space, where capital markets groups are increasingly looking for end-to-end, scalable solutions in otherwise fragmented markets. In order to satisfy an increasing demand for seamless banking experiences, embedded finance or embedded banking, companies’ needs to integrate third-party banking and payment services into their own apps and platforms has come to the forefront. 

Just as apps such as Venmo, WePay, and Square have brought convenience, transparency, and efficiency to the retail consumer, embedded finance applications are bringing similar value propositions to the banking industry.

How do open banking movements impact embedded finance?

Open banking initiatives have helped to supercharge this trend in many parts of the world, from PSD2 in the European Union to Hong Kong’s Open API Framework. 

In the US, more and more legacy institutions are beginning to offer open banking opportunities. JHA’s new cloud-based digital banking platform, BankAnywhere, for example, is accessible to all banks working with any core platform. 

As consumer demand for seamless digital interactions continues to grow, there is little doubt that embedded finance is the future – or that it will be powered by bank-fintech partnerships.

At Currencycloud, embedded banking is our bread and butter, and is integral to our success as a business. Because our entire global banking ecosystem is powered by APIs, we can work with a network of partners to construct a customized global banking experience. 

DPI partnership: combining best-in-class technologies 

Our newest partnership with Derivative Path, Inc, (DPI) is a prime example of what embedded banking can achieve. 

DPI is a fintech offering a cloud-based trading platform for interest rate and FX derivatives. As a leader in embedded B2B cross-border payments and best-in-class technologies, we have partnered with DPI to provide bank clients with seamless and cost-effective solutions. Together, we are able to provide an end-to-end solution for order management, electronic spot FX execution via Request for Quote, third-party international payments and receipts, derivatives valuation, and risk and compliance reporting.

Pradeep Bhatia, Co-CEO and Co-Founder of DPI, believes this model will demonstrate what can be achieved when two companies recognize their complementary strengths. “This joint effort will help us leverage our technology capabilities, global infrastructure, and subject matter expertise,” he explains, “to offer banks a platform to manage their FX and payments, a growing need in an underserved space.  Our industry leading rates platform now combined with Currencycloud’s capabilities will make our offering even more powerful for our regional and community banking clients.”

Above all, our partnership demonstrates what can be achieved when two companies recognize their complementary strengths. 

So, how can banks make the most of the possibilities offered by embedded finance and fintech collaboration? 

1. Invest in a strong vendor management program supported by clear policies and procedures. Require your vendors (and your vendors’ vendors) to be held to regulated bank standards.
2. Commit to best-in-class technology. Don’t just settle for whatever the core provider is offering. Push for investment in the best technology for you and your customers.
3. Encourage partnerships between fintechs who have complementary offerings. Be a leader and help facilitate ideas, introductions and recommendations.
4. Don’t just be a fintech’s customer – be their partner and help them grow with you.
5. Consider sponsoring a program. Neobanks, prepaid card programs and alternative loan programs need your support with issues such as regulation and compliance; while you could benefit from their technology, marketing and ability to attract diverse loans and deposits.
6. Offer platforms that are cloud-based, with low touch onboarding, and the ability to manage your capital markets program remotely.  This is more relevant than ever given the significant disruptions occurring due to COVID-19 which is requiring a large segment of employees in the financial sector to be working remote indefinitely.
   

Fintech collaboration is crucial for the economy

Partnerships between banks and fintechs are not just important – they are imperative to the long-term stability and survival of the US economy.

The diversity of the US banking system is one of the things that makes America unique. Partnering with fintechs enables community financial institutions to compete with the big players. Similarly, banks bring a wealth of knowledge to fintechs, particularly around compliance, regulation and other banking issues. 

Embedded finance is the future, and it is those banks that are bold and make early inroads who will succeed in the long run.